When your HMO or IPA goes bankrupt

If an organization you contract with goes under, it could drag you with it. Here's how to protect your practice.

By Leigh Page, AMNews staff. Jan. 22, 2001.

When an independent practice association or other contracting organization goes out of business, it can be a nightmare for physicians. Left holding tens of thousands of dollars in claims, they usually face a complicated federal bankruptcy process that can take years to resolve and probably will pay just pennies on each dollar owed, consultants say.

"Imagine the doctors' situation," says Los Angeles attorney Jeremy Miller, who represents physicians in IPA bankruptcies. "Their bills were mounting, they were getting assurances [from the IPA] that they will be paid. Then it goes under, and they are stuck holding worthless accounts receivables."

In California, Miller is at the epicenter of a growing trend of health care bankruptcies fueled by steep increases in health care costs. At least 25 California IPAs failed in 2000. Similar entities -- from physician-hospital organizations to HMOs -- have closed in recent years in Washington state, Texas, Colorado, Maryland, New Jersey and North Carolina.

The goal of a bankruptcy or related proceeding is to pay creditors what money is left in an organized way.

Some organizations hang on for a while to generate cash for creditors in federal Chapter 11 reorganizations. Some go straight into liquidation in federal Chapter 7 proceedings. Others enter less formal state court proceedings or wrap up their debts in private agreements, which can be faster and less costly provided major creditors sign on.

Some organizations -- HMOs in particular -- are taken over and liquidated by the state. And in some lucky cases, such as the failure of HIP Health Plan in New Jersey, the state finds extra cash for creditors. But physicians are often left with little, if anything. [...]